Sideways movement in a narrow range looks like a triangle. The question is: where did price enter the triangle and so in what direction will the breakout be?
I have three hourly wave counts to try to answer this question.
Summary: It looks like today minute wave iv is incomplete. It looks like price is now moving sideways to complete a triangle. The breakout is most likely to be downwards, which should be confirmed below 1,201.5. If that happens, the target is at 1,184.
New updates to this analysis are in bold.
Last published weekly chart is here.
DAILY ELLIOTT WAVE COUNT
The cyan trend line is now breached by a full weekly candlestick above and not touching it. This gives substantial confidence that Gold has very likely changed from bear to bull.
So far, within the first five up, the middle of the third wave is now most likely complete. The strongest move may still be ahead. Gold typically exhibits swift strong fifth waves to end its third wave impulses. Look out for surprises to the upside for minute wave v and minor wave 5.
At 1,339 minor wave 3 would reach 6.854 the length of minor wave 1.
Minute waves i, ii and now iii are complete within minor wave 3.
The fourth wave corrections are so far more brief and shallow than expected within this impulse unfolding upwards. This pattern may continue, which is why I say look out for surprises to the upside. Gold typically exhibits swift strong fifth waves to end its third wave impulses, and this often forces the fourth wave corrections which unfold right before to be over more quickly and be very shallow. It gives Gold’s impulses a curved look at a higher time frame.
The pink channel is a best fit. Draw the first trend line from the highs labeled minute waves i to iii then place a parallel copy lower to contain the whole upwards wave. If it continues any lower, then minute wave iv should find strong support at the lower edge.
Minute wave ii was a deep 0.68 zigzag. Minute wave iv should be shallow and may be a flat, combination or triangle most likely. Minute wave ii lasted 7 days. The balance of probability has changed today with minute wave iv likely to continue a little lower. The target is at 1,184 where it would reach down to the 0.382 Fibonacci ratio of minute wave iii. If it ends in one more day, it would total a Fibonacci five, but it may be longer lasting and continue for a further four trading days to total a Fibonacci eight. At this stage, one more day only looks more likely.
MAIN HOURLY WAVE COUNT
Minute wave ii was a deep 0.68 zigzag.
If minute wave iv completes as a shallow zigzag, then there would be alternation in depth but not structure. Alternation is a guideline, not a rule, and is not always perfect. A wave count which expects more alternation should have a greater probability than a wave count that expects less, but towards the end of a structure it may become clearer how it is unfolding. At this stage, minute wave iv does look like it is a zigzag.
The most important difference today between this wave count and the first alternate below is the structure of the first part of this downwards wave, here labelled subminuette wave i. If a triangle is unfolding for a B wave, then it will be more shallow than 90% of the A wave, so the A wave must be a five wave structure. To see the A wave as a five subminuette wave i has a problem because within it micro wave 3 looks like a three wave structure when it should be a five. For this reason alternates must be considered.
Sideways movement for the last session looks like a triangle. Second wave corrections may not have triangles as the sole corrective structure, so this triangle may be a B wave within a zigzag.
The triangle is supported by MACD hovering at the zero line.
If this triangle is correctly labelled, then the breakout should be downwards when it is complete. A new low below the end of subminuette wave d at 1,201.50 would most likely be a downwards breakout, especially if downwards movement is swift and strong.
Movements out of Gold’s triangles are sometimes quite short. If minute wave iv ends at the 0.382 Fibonacci ratio at 1,184, then minuette wave (c) may be short. It would be 0.618 the length of minuette wave (a) if it is 43.90 in length, or 0.382 the length of minuette wave (a) if it is 27.14 in length.
If this wave count is accurate, then as soon as price makes a new low below the end of minuette wave (a) at 1,190.90 then be alert for the possible end to this correction.
If price comes down to touch the lower pink line, it should find strong support there.
When minuette wave (b) is complete, then a channel may be drawn about this downwards zigzag. The upper edge of that channel should be used to confirm when the correction for minute wave iv is over. Only when the upper edge of that channel is breached by upwards movement may confidence be had that the correction is over.
For now, because minuette wave (b) is most likely incomplete, the channel cannot yet be drawn.
ALTERNATE HOURLY WAVE COUNT
I have learned the hard way to always consider other possibilities with triangles. What if this triangle is a B wave within a B wave?
If the triangle is a B wave within a zigzag, then the breakout should be upwards. Now minuette wave (a) may again be seen as a three, a double zigzag.
Minute wave iv is seen as a flat correction for this wave count.
Within a flat correction, minuette wave (b) must retrace a minimum 90% of minuette wave (a) at 1,254.84. It may also make a new high above the start of minuette wave (a) at 1,261.94 as in an expanded flat.
If price remains above 1,201.50 and moves strongly higher in the next 24 hours, then this should be the wave count which is used.
When minuette wave (b) is a complete zigzag and has met the minimum requirement at or above 1,254.84, then a target may be calculated for minuette wave (c) downwards. For now the target will remain the 0.382 Fibonacci ratio at 1,184.
SECOND ALTERNATE HOURLY WAVE COUNT
At this stage, I would judge this second alternate to have the lowest probability of all three hourly charts.
If minute wave iv is complete as a shallow double zigzag, then minute wave v must have begun. Sideways movement may be micro wave B within subminuette wave ii. It may be complete as a double zigzag as labelled, or it may continue as a triangle (not labelled). Either way micro wave C must move lower and should end below the end of micro wave A at 1,195.66 to avoid a truncation. It may not move below the start of subminuette wave i below 1,190.90.
This wave count is possible but less likely. All possibilities at this stage should be considered.
Click chart to enlarge. Chart courtesy of StockCharts.com.
A small inside day completing a green candlestick on lighter volume is bearish. More downwards movement should be expected.
So far the 9 day Exponential Moving Average is providing support.
The lowest of a group of horizontal trend lines is today providing resistance.
ADX is flat indicating the market is not trending. It has not indicated a trend change yet, so it should be expected that the market is consolidating.
ATR may be beginning to decrease, but overall for the last several days it was increasing as price moved higher.
On Balance Volume has today found support at the dark blue line. This line is reasonably shallow, long held, and has been tested a few times. It has good technical significance and may assist to continue to help to hold up price. This suggests that although volume indicates more downwards movement ahead it may not be very deep; OBV may hold it up.
If the dark blue and green lines are breached by OBV, then the next line to offer support is the light blue line which is a long way away.
This correction has returned RSI from overbought. Stochastics is also returning from overbought.
I have taken some time to look back over price data back to December 2010. I have noted wide ranging days (a wide range compared to several days immediately prior) which completed a trend with a spike in volume and looked at how long the following correction lasted. This list is not exhaustive; it is the few that appeared to be clear from a visual identification. (I did not find any wide ranging days with volume spikes at the end of movements for the end of the last bull market from December 2010 to September 2011). Results are listed here:
Past wide ranging days with volume spikes at the end of movements:
Date, Price range, Volume (K), Result (any candlestick pattern?)
26 Sep 2011, $128.07, 150.3, 31 day correction (hammer)
4 Jan 2013, $38.19, 297.1, 12 day correction (hammer)
15 Apr 2013, $83.03, 24.4, low next day, 8 day correction
19 Jul 2013, $26.87, 222.1, 2 day correction
15 Oct 2013, $35.88, 298.9, 9 day correction (hammer)
18 Dec 2013, $28.23, 183.7, 5 day correction
19 Jul 2014, $45.65, 158.5, 5 day correction
My conclusion is that a wide ranging day at the end of a movement which has a volume spike should result in a correction lasting two to eight days. If the wide ranging day is also a single candlestick reversal pattern (a hammer in a downtrend, or a shooting star or hanging man in an uptrend), then the correction that follows it may be more long lasting.
In this instance for 11th February, 2016, the candlestick is not a reversal pattern, so a more brief correction looks most likely.
This analysis is published @ 07:38 p.m. EST.